Mar 31

UK Banks Must Prove They can Withstand Another Slump

This year’s banking stress tests from the Bank of England will introduce a new element not seen on previous occasions. This year, the stress tests will require the banking industry of the UK to prove that it will be able to withstand another slump in the global economy.

This move comes a few months after the former chief of the bank, Mervyn King, said that the banking system remained weak and may not be able to withstand another financial crisis without improvements first being made.

Bank of England stress testing is a relatively recent concept, dating back to 2013. It is carried out annually, and seeks to assess the strength of the baking system and its potential vulnerabilities by examining it in detail and reporting on its ability to handle various hazards and eventualities. The 2014 stress test looked primarily at vulnerabilities in the banking system that relate to the housing sector.

The parameters of this year’s banking stress tests have been set out by the Bank of England. It will explore a number of eventualities that would relate or potentially lead to another global financial crisis.

For instance, the report will assess the system’s ability to survive should economic growth in the Eurozone suffer a sharp downturn. Major banks and building societies will be required to present evidence that they are in a sufficiently strong and stable position to survive if the Eurozone’s economic output should fall by up to 2%.

The stress tests will also look at how vulnerable the UK banking system would be to a collapse in economic growth in China – one of the world’s most important economies and one to which the UK banking industry has significant exposure. In particular, should China experience economic growth of only 1.7%, Hong Kong would fall into a serious recession. The Hong Kong property sector is an important one for many UK firms including HSBC, and these firms would be hit hard as prices drop by an estimated 40%. As part of this year’s stress tests, banks will have to prove that they would be able to survive should this eventuality come to pass.

Furthermore, the tests will look at what would happen should the UK see serious economic contraction. The Bank of England will assess whether banks could withstand total contraction of 2.3%.

Last year’s tests were considered thorough, so it is a surprise to some that this year the tests seem even stricter. However, this year’s tests will remedy one common criticism of last year’s report – that it focussed solely on the UK and ignored the many international vulnerabilities that UK banks and building societies hold.

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Jan 17

ISA’s & Interest Rates

To maximise your savings, many financial advisers recommend ISA’s

Such Individual Savings Accounts (ISA) are tax free savings where a wide range of investments (cash, stocks, shares, etc.) can be invested in. There is no income tax to pay, and no tax on profits. The interest rates are usually relatively high. These factors make ISA’s great for long term savings.

Savvy savers already know all about ISAs, with many already investing in one. January 2015 sees the usual deadline of April and the end of the financial year looming, and only a few months left to make the most of the cap on Isa’s, which under new rules allows for up to £11,880 to be invested by any one person in their ISA.

April 2015 will see savers allowed to invest as further £11,880 over the next financial year, if they so desire. Financial advisers regularly recommend ISA’s as a convenient method of long term savings, with guaranteed and tax free returns, and (in some cases) a degree of flexibility. Even if not utilised fully, ISA’s are still a very well recommended method of saving.

Despite that, the issue over interest rates remains. In 2007, prior to the great economic crash, ISA rates stood at a respectable 5.5% on average. Following the crash, rates slumped dramatically. 2014 saw ISA rates on a one year’s cash ISA fall to 1.6% on average.

Recently, the Bank of England’s Monetary Policy Committee (MPC) kept interest rates at 0.5%. All the indications are that that rate is set to remain until mid-2016 or so. Given the instability in the Eurozone, and recent quantitative easing (QE) from the European Central Bank (ECB), it is unlikely that the Bank of England will be in any rush to raise interest rates.

2014 saw predictions that interest rates would rise. That was dashed by Threadneedle Street. Now, revised estimates and predictions have the interest rates pegging at the same low level for some time.

This trend could be seen for some time to come, according to financial advisers and economists. According to Wealth Horizons financial advisers, even the most dramatic of financial predictions have seen the Bank of England’s interest rates at 1.5% in 2020, meaning that ISA savers will have to wait until around 2025 before the generous rates of old are seen again.

With interest rates likely to remain low for the foreseeable future, many banks are offering, and many savers are settling for, a fixed rate ISA. Such ISA’s will pay more interest- but will tie up savings and cash for longer. Generally, the longer the savings are tied up for- the higher the returns will be. Also, such a fixed rate ISA over the long term gives the saver a feeling of stability and security. The great benefit of the fixed rate account is the very fact that interest rates are going to be low for a good few years. As such, the interest accrued on the capital over that long term will be greater than the interest accrued in shorter, more flexible savings. Consequently, such long term, fixed rate ISA’s can actually be a very good option. However, if interest rates do start to rise, than that advantage is lost.

A further matter for ISA savers to consider are ‘teaser rates’; high interest rates which banks boldly advertise. According to Chris Williamson, the head of Wealth Horizons “Isa savers are often drawn into headline grabbing rates in the run up to the Isa deadline – teaser rates which then vanish after a few months.. People should never assume that the price they get when they open the account is what they will have for the lifetime of the Isa.” Financial regulator the Financial Conduct Authority (FCA) has long criticised the practice- but has yet to take any affirmative action against banks and teaser rates.

Susan Hannums, director at a savings advice web site said that recent years have seen a disconnection between bank savings rates, and the national base interest rate. Thousands of variable savings rates have been cut, with no movement in the base rate for nearly seven years. According to Ms Hannums “there seems little reason to believe that when rates do start to rise that all savers will reap the full benefit.” She further advises savers not to “put all your eggs in one basket. Spread your money between a mix of accounts from high-interest paying current accounts, fixed-rate bonds, and accessible variable-rate accounts – which would allow you to take advantage of the best rates on offer now, whilst keeping some cash accessible should better rates become available”

According to some financial advisers, as of January 2015, the Post Office seemingly offers some of the best ISA’s currently.

For fixed rate ISA’s, the Post Office offers the best rates, at 1.95pc (two years) and 2.1% (three years) Virgin Money offers the best rate (1.7%) for a one year ISA)

For flexibility and easy access, the National Savings and Investment (NS&I) Direct ISA offers instant access, no notice withdrawals- and 1.5% interest.

Other notable ISA on offer include a Virgin Money three year fixed rate ISA at 2.15%. For variable rates, Hinckley & Rugby and Furness building societies offered ISAs at 1.6%.

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Sep 02

New ISA Rules Boost Savings Deposits

According to major High Street banks, July saw a significant increase in the total value of savings deposits. The rise is being attributed to the introduction of the New ISA (NISA) rules first announced by Chancellor George Osborne in this year’s Budget.

Figures reported by the British Bankers’ Association (BBA) show that July saw a total of £4.9 billion deposited into the new NISA accounts as savers were keen to take advantage of increased flexibility and, in particular, the newly-increased £15,000 tax-free limit. Last July, deposits totalled a much lower £18 million.

Usually, a surge in savings deposits is seen in April at the start of the new tax year, when ISA holders benefit from the start of a fresh annual allowance. However, April deposits this year were lower than in previous years. Only £3.9 billion worth of savings deposits were made in April this year, compared with £6.3 billion in April 2013 and £7.5 billion in April 2012. Instead, a surge was seen in July, similar to the surges that usually take place at the start of the tax year. This suggests that a large number of savers were specifically holding out for the new rules to take effect before making their deposits.

ISAs or the newer NISAs are held by approximately 23 million UK adults, which equates to around half of all adult individuals in the country. However, low interest rates mean that yields from these accounts are currently very low. Bank of England figures suggest that the average saver is only getting a 0.86% return from their ISA, or 86p for every £100 of funds held. The increase in the annual allowance was introduced in an effort to help savers reap greater levels of benefit from the use of tax-free savings accounts.

Cash-only savers especially benefitted. The rise in the annual allowance was coupled with the scrapping of the rule stating that only half your allowance could be held in cash. This meant that savers who do not wish to hold stocks and shares experienced an effective near-tripling of the limit. Where previously cash-only savers could only hold £5,760 tax-free in an ISA, they can now hold up to £15,000.

Those who do wish to hold stocks and shares in an ISA also benefit from increased flexibility. Stocks and shares can be mixed with cash in any combination to make up the total ISA allowance. Money held in stocks and shares ISAs from previous tax years can be transferred into new cash NISAs to take advantage of the increased cash limit, though this may be partially subject to terms from individual providers.


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Jul 08

New ISAs: How to transfer safely from stocks & shares to cash

The new super ISA regme which takes place on July 1st will allow investors for the first time ever to make a money transfer from shares and stocks into cash ISAs. However, this scheme must be treated with caution in order to avoid losing out on the tax benefits from the savings stack.


This rule change will most certainly be welcomed with open arms by people who are soon to retire who may want to cash out and not leave their savings exposed to the stock market. Further, those savers who are getting married or looking to purchase a house will also welcome the scheme as the may want to put aside their gains and protect a chunk of their savings.

However, the most important crucial aspect of the transaction is to avoid simply withdrawing you savings from the investment Isa and depositing it into the cash ISA. Doing this will erode the tax free perks. 

The first step in any transaction is foremost to decide where you would like to transfer your money. If you have not taken out a cash Isa so far which started on 6th April then you still have an opportunity to shop around for an account which offers a good interest rate. The rate on instant access accounts tends to be lower although they offer greater flexibility and perhaps less commitment by the saver. The good and competitive rates are handed over to savers who are prepared to lock out their money for a number of years this usually being from one to five years. 

If you are however one of those people who have already taken out a cash Isa this year check that is can accept transfers from different ISAs. If you have a fixed rate ISA then there is the possibility that you may be unlikely to be able to add proceeds from shares and stocks. 

Next, you are to fill out a transfer form telling your banking institution to transfer money from a shares and stocks ISA. Details of your investment ISA as well as the provider and the number of the account will be necessary.  The new ISA provider will then send over a transfer request to the provider of the stocks and shares ISA which will then act according to your instructions. Upon settling the sales and closing fees being deducted the money will be found in the cash new ISA with the provider.

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Jun 24

Biggest Mis-Selling Scandal to hit Banks Since PPI?

A new mis-selling scandal has rocked the banks relating to products known as swaps which are designed to provide interest rate protection. Some are suggesting that this could prove to be the biggest scandal since the well-publicised PPI scandal first broke in 2011.

The nature of the scandal is very similar to that of the well-known and ongoing PPI scandal. Once again, banks stand accused of selling unnecessary or inappropriate protection policies with certain products to customers who never asked for them. The result was that banks collected millions in fees from customers for products that were never needed.  However, unlike the PPI scandal which affected millions of ordinary people, this new mis-selling debacle relates largely to more specialist and higher-value products. Initial investigations focussed on interest-rate hedging products (IHRPs), which are largely sold to small or medium-sized businesses. The scale of investigations have now expanded into other high-value areas, such as policies valued at over £10 million.

It is estimated that the total value of repayments in relation to this latest scandal could reach levels as high as £22 billion. According to the latest figures from the Financial Conduct Authority (FCA), PPI compensation payouts have amounted to £14.7 billion so far. These figures are based on payouts since a High Court order first required that banks make repayment provisions in 2011, up to March of this year. It should be noted, however, that the PPI scandal is still very much ongoing with the first quarter of 2014 seeing monthly payouts of well over £300 million. As such, the estimate does not necessarily suggest the scandal will far exceed PPI in terms of repayment value.

One consequence of this latest mis-selling scandal is that the government’s objective of returning the Lloyds Banking Group to private ownership may be hindered. The government currently holds 25% of the group, but aimed to restore it to being fully privately owned before the next general election. With estimates suggesting Lloyds’ liability in the most recent scandal could be as high as £5 billion, these plans may have to be revised. The government’s hopes of restoring confidence in banks in general are also likely to suffer.

Some analysts are suggesting that, from the banking world’s point of view, this scandal could be even worse than PPI. While the profits made on PPI mis-selling were still able to somewhat offset the cost of repayments, this is not likely to be true of swaps.

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Apr 25

30 Million Customers to get new Mobile Payment Options

3d illustration: Mobile technology. mobile phone30 million bank customers will soon be able to make payments using little more than a mobile phone number following the launch of a new service. The Paym service will take effect on 29th April and affect customers of many major UK banks.

Customers wishing to use the service will have to register their mobile phone number and link it to their account. They will then be able to make payments to anybody in their contact list who has also registered with the Paym service. They will not need to have that person’s bank details such as account number or sort code. The mobile phone number linked to the recipient’s account will suffice.

A number of UK banks are taking part in the Paym initiative from the launch day. Notably (but not exclusively), the list includes:

  • HSBC
  • Barclays
  • Lloyds Banking Group (including Lloyds Bank, TSB, Halifax and Bank of Scotland)
  • Santander
  • Royal Bank of Scotland
  • Nationwide

Only a few major high street banks have not signed up to take part in the initiative from launch. Perhaps the most notably absent name is the Co-operative Bank, which is currently going through turbulent times. The bank seemed to indicate in a statement that they will keep an eye on Paym’s progress following its launch with a view to potentially taking part in the future.

The system is in some ways reminiscent of M-Pesa, the revolutionary mobile banking solution from sub-Saharan Africa. However, where M-Pesa allows payments to be made through phone calls or texts, Paym will be incorporated into the mobile banking apps already used by banks and building societies.

According to the Payments Council’s chief executive Adrian Kamellard, the new system “will play a big role in making mobile payment normal.” Kamellard went on to say that the introduction of Paym “recognises the fundamental importance of payment via mobile.”

Kamellard was also keen to reassure consumers about the security of Paym. He said that “Paym is making use of highly secure systems” as well as stressing that “no third parties are involved.”

With mobile payment becoming an increasingly hot topic in consumer banking, Paym is set to be complemented by the launch of an app called Zapp. Expected this autumn, Zapp will cover separate territory to Paym. While Paym focusses on bank transfers, Zapp will be designed to enable people to pay for goods. Initially it will focus on online transactions, but in-store purchases are intended to be covered at a later date.

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Mar 17

Lloyds to Boost Small Business Lending

Lloyds Banking GroupThe Lloyds Banking Group has announced that it intends to significantly boost the amount of money it lends to small and medium sized enterprises (SMEs). This year, it is planned that lending will increase by £1 billion.

The lending boost is not the only change Lloyds are introducing with the aim of making things easier for smaller businesses. There is a limit to how much money local managers can lend to this type of business without seeking central approval. This limit currently stands and £500,000, but the bank has now promised to double that figure. As a result, SMEs will have access to potential lending of up to £1,000,000 without the need for local managers to seek approval.

These changes come as part of a new initiative that the bank has recently announced. Its “SME charter” is designed to help smaller businesses and start-ups to benefit from better lending opportunities with the Lloyds Group. Overall, the bank has vowed that it will help 100,000 new firms to get started in business over the course of this year.

For many small business owners and entrepreneurs, the new SME Charter and the commitments it contains will come as welcome news. Recent reports have suggested that a large percentage of SMEs and new start-ups are funded by personal savings or loans from family and friends due to the difficulty of obtaining backing from banks.

Furthermore, it was recently claimed by the economy committee of the Scottish Parliament that the UK needs new credit sources to be made available to SMEs. According to the findings of the committee, about 70% of lending in 2012 came from Bank of Scotland or RBS. In light if these figures, the committee said that the industry would benefit greatly from increased competition. It also suggested that enterprise agencies need to build a more comprehensive knowledge of the various finance models available.

The Lloyds Banking Group includes a number of well-known high street names in banking and finance. As well as Lloyds TSB, the group also includes Bank of Scotland.

Alasdair Gardner, managing director of Commercial Banking for the Bank of Scotland, expressed his support of the new SME Charter. He said that it “sets out the pledges we are making to our customers.” Gardner went on to say: “We will be fair and transparent in all of our dealings with our customers; and will provide broader support through our relationship managers and business specialists, as well as a growing number of business mentors.”



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Feb 11

Barclays Cutting up to 12,000 Jobs

Barclays LogoBarclays has announced plans for up to 12,000 jobs to be cut in an effort to reduce costs. The move has attracted criticism however. At the same time, it was revealed that bonuses have been upped, leading many to suggest this should have been the priority source of cost savings instead of job cuts.

The bank currently employs approximately 140,000 staff. Between 10,000 and 12,000 of these are going to be cut as part of the current push to save costs. 7,000 of the jobs cut are within the UK. It is claimed that 820 of the lost jobs will be at senior management level, including 600 directors and 220 managing directors. About 400 of senior management-level cuts will affect staff from the bank’s investment wing.

It is claimed that around half of the staff who are being shed have already been told. These job cuts follow on from similar cuts last year, when 7,650 roles were cut.

It has, however, been announced that the total bonus pool for 2013 was £2.38 billion. This represents a rise on 2012′s bonus pool, which was £2.17 billion. This has caused some controversy, as many feel it is inappropriate for a bank to cut jobs in order to lower costs while at the same time increasing the money paid in bonuses.

According to Chief Executive Antony Jenkins, defending the situation; “At Barclays, we believe in paying for performance and paying competitively.” Jenkins voluntarily waived his own bonus.

The bank attracted criticism from the Institute of Directors. The organisation’s Director of Corporate Governance Roger Barker said: “In 2013, the bank paid out £859m in dividends compared to a staff bonus pool of £2.38bn. The question must be asked – for whom is this institution being run?”

Barker added “It cannot be right in any business for the executive bonus pool to be nearly three times bigger than the total dividend pay out to the company’s owners. ”

According to Gareth Hunt, analyst from Canaccord Adams, the move puts the bank’s pay-to-income ratio noticeably above the average figure for the industry. The average for 2013 stands at 40.2%, compared to 43.2% for Barclays. This compares to 2012 when Barclays’ figure stood at 40%, and is far above the bank’s target which is in the mid-30s. Barclays maintains that they are still aiming for a figure in the mid-30s ultimately, but defends the decisions made in the short term.

Barclays insisted that the increase in the bonus pool was in shareholders’ interests in the long term.

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Jan 23

Payment Protection Insurance

The PPI scam has become a widespread phenomenon with billions of pounds being paid in compensation to those who had been sold payment protection insurance wrongfully or inappropriately. There are many factors involved in making a claim for a PPI refund. It is sometimes possible to make a claim for refund if you have already claimed on the actual PPI policy in the event of not being able to make your borrowing repayments, but the chances of a refund are less. Knowing about the PPI basics will help you know more about the eligibility you possess.

Saving Money on Payment Protection Insurance

If you have PPI that is bought along with a loan, you will be paying a huge sum as due. If you can get the same cover by paying less, change over becomes easy.

  • For instance, a standalone policy is markedly cheap when compared to the PPI taken along with a loan. A PPI guide will help you know how you can get a better deal without paying expensively for the insurance cover.
  • In case you have a PPI policy with a loan, the provider concerned should allow for the PPI to be cancelled. You can substitute it for standalone policies which will cost you only one third of the fee.

While you change over to a new policy, you should be careful as many policies do not include any pre-existing conditions that are present at the time of the policy. This will end in a loss for you if you throw a blind eye.

Reclaiming PPI

In case you have reclaimed a refund for your PPI from your lender, your insurance will cease to be in effect. When you reclaim, it denotes that the policy is not suitable for the requirements you have. You should get PPI help towards reclaiming only when you are sure that the insurance is not suitable for you.

Mis-sold PPI needs to be addressed in the proper manner. Though PPI policy offers a solid insurance cover, it is not for everyone. In case you have been mis-sold, you need to approach your loan provider directly or a PPI claims company to make a claim for a PPI refund.

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Dec 20

Co-Operative Bank Stable Again

Cooperative_BankAfter months of instability and uncertainty, the Co-operative Bank has once again managed to stabilise itself. The discovery of a £1.5 billion hole in the bank’s capital in June led to serious concerns about its future.

The bank once again looks set to continue operating. The bank has now successfully completed its Liability Management Exercise (LME), which has generated equity from £1 billion worth of bondholders’ capital. After a court meeting and series of votes from bondholders, this key recapitalisation move has now successfully been put in place.

The remaining half a billion pounds in the equity hole shall be filled through a combination of sources. This will include funds from capital sales, savings on interest, and funds from majority stakeholder the Co-operative Group.

However, as a result of the LME, the institution is now no longer purely “The Co-operative Bank.” While the Co-operative Group shall remain the single largest investor and the brand shall remain in place, the bank’s shares will now be divided with other stakeholders. The Co-operative Group previously held complete ownership of the bank, but now own just 30% of shares.

The remaining 70% of shares will be divided among bondholders such as Monarch Alternative Capital. However, it is worth noting that no more than 9.9% of the bank’s equity will go to any single stakeholder. As such, while the Co-operative Group’s ownership is significantly reduced, they will still be the biggest single shareholder more than three times over.

The Co-operative Group’s ethical remit will also remain in place, having been incorporated into the articles of association for the bank.

While the bank’s future now looks more secure, there is still a lot of work to do. When the LME was unveiled last month, head of the bank’s management team Niall Booker confessed that it could take five years before the bank once again turns profitable.

The reputation of the bank has also been significantly damaged. Alongside the significant financial instability the bank has experienced, people’s opinions have also been tarnished by allegations of Class A drug use against the bank’s former chairman. In the wake of these embarassments, the bank has seen the loss of some customers.

The bank now faces several further steps. 15% of the bank’s branches are to be closed. This represents almost 50 individual branches out of the bank’s total of 324. The bank’s IT systems are also set for a massive overhaul.

The bank is also set to enter into negotiations with the Financial Conduct Authority, regarding a potential listing on the stock market next year.


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